DTN Before The Bell Grains

Morning CME Globex Update:

After a modest 43-point bounce on the Dow Jones average on Thursday, Dow futures are down 243 points early Friday. July crude oil is down $1.26 per barrel, the U.S. dollar index is down 0.2180, and June gold is up $9.00 an ounce.

Other Markets:

Dow Jones:	Lower
U.S. Dollar Index:	Lower
Gold:	Higher
Crude Oil:	Lower

Corn:

After Thursday's strong gains and challenge of recent highs, both old and new crop corn futures are plunging early Friday morning. The strong multi-year resistance on spot futures of $4.38-$4.39 has once again proven a tough obstacle to overcome. Corn weakness Friday morning is being fueled by what appears to be an ill-timed threat of a 5% tariff on all imports from Mexico just as the USMCA trade agreement was expected to be ratified by both Canada and Mexico. President Trump's willingness to lump the rapid flow of immigrants across the U.S. southern border with trade has pressured not only grains but equities and crude oil as well. The focus on Friday morning has moved away from the severely late planting issue and likely huge loss of both acreage and yield on corn to yet another stumbling block for agricultural trade. The threat of not only imposing the 5% tariff on June 10, but possibly increasing it to 25% by October unless Mexico helps to stem the constant flow of border crossers, has cast a bearish pall over the recent weather inspired rally and U.S. demand. The weather forecast, while it is warmer and drier than in recent days, still promises moderate rains in the Central and Eastern Corn Belt and heavy rains in parts of the Southern Plains, with river flooding issues expected to continue. Planting progress in the Northern Plains and upper Midwest should be able to make some strides. Managed money funds are thought to have covered nearly all of what was a once record net-short in corn, and in fact may have entered a new long. Option volume and volatility has exploded, with upside protection being taken by many. This has been a supply-driven rally and there has been no demand story for U.S. corn, and the latest move regarding Mexico has threatened trade with the largest buyer of U.S. corn. On the recent rally, U.S. corn has priced itself out of many world markets. Ethanol production fell last week, and stocks declined by 3.3%. Corn export sales for the week ending May 23 were 35.7 million bushels (mb) for 2018-2019. Shipments of 67.7 mb were above the 45 mb per week needed to reach the 2.3 billion bushel (bb) USDA projection. Total commitments of 1.899 bb are down 11% versus last year. DTN National Corn Index closed at $4.09 on Thursday, with an average basis of 27 cents under July.

Soybeans:

Soybeans are just modestly lower to begin Friday, once again falling short of the Wednesday highs on both July and November futures. Pressure on soybeans is also coming from the news of tariffs on Mexico. Though not as important as corn, Mexico is a significant buyer of both U.S. soybeans and meal, and such a threat has traders fearing a move for Mexico to seek South American alternatives. Funds have been covering part of their once record net-short in soybeans, but to begin Friday, are still thought to be net-short over 100,000 contracts. They are estimated to have bought 17,000 contracts on Thursday and over 50,000 contracts in the past three days. Although soybeans are dramatically behind the average planting pace, there remains time for soy to catch up, and analysts are plugging in higher soybean acres than the March intentions. Ag Resource, for one, suggests that soy acreage could be 1.4 million acres higher, at 86 million acres. The fact that U.S. soybean ending stocks are likely to be above one billion bushels, and South American supplies are huge, funds and traders have been more hesitant to get bulled up on soybeans. There is also the fear that in the absence of a U.S.-China trade solution, China could cancel or roll unshipped sales. Although the recent rally in soybeans and fall in South American currencies has resulted in good farmer movement from there, some analysts, such as Linn Group, estimate that Argentine farmers are still unsold on 60% of their soy crop, instead holding as an inflation hedge. Look for July soybean futures to have solid resistance at $9.00-$9.20 and November to have selling at $9.20-$9.35 on a further rally. Soybean sales for the week ending May 23 were 16.7 mb for 2018-2019, and shipments were 17.2 mb, well below the 32.5 mb needed each week to reach 1.775 bb. Total commitments of 1.699 bb are down 17% versus last year. DTN's National Soybean Index closed at $8.07, and reflects an average basis of 82 cents under July.

Wheat:

Wheat futures markets are also tumbling on the disturbing Mexico tariff implications, as well as the overall drier forecast, especially for the western Midwest and Northern Plains. However, the Southern Plains, including mature wheat in west Texas, Oklahoma and Kansas are expected to endure more heavy rains and flooding. The threat for wheat is not only from declining quantity from lodging and hail, but also the likelihood of a sharp increase in disease having an impact on quality. It is also assumed that the hard red winter (HRW) wheat crop is likely to be of the low protein variety, placing a premium on high protein milling quality in the coming year. Often low protein wheat will make its way into delivery houses, keeping pressure on spot futures. Managed funds in wheat have been covering shorts, but are thought to still be short over 40,000 contracts in Chicago and a like amount in Kansas City. U.S. spring wheat should have a better shot a finishing planting in coming days with the drier pattern. There are some problems in global wheat, with the hot and dry pattern in the Black Sea and ongoing drought in Australia possibly having an impact on those crops. However, the world is still awash in wheat supplies. Wheat export sales for the week ending May 23 were 5.6 mb for 2018-2019 and shipments were 16 mb, less than the 19.6 mb needed to reach the USDA projection of 925 mb. Total commitments of 950 mb are up 9% versus last year. DTN's National HRW index closed at $4.61, and the average basis is at 18 cents under July.

Dana Mantini can be reached at dana.mantini@dtn.com

FollowDana on Twitter @mantini_r

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